Shares have started the day on the back foot, taking their cue from cautious Fed forecasts yesterday evening rather than better-than-expected US inflation data a few hours earlier. The FTSE 100 was down 0.5 per cent by mid-morning, while its European counterparts continue to underperform on the back of President Macron’s election gamble earlier this week.
Asian shares were mixed overnight, the Nikkei closing down 0.4 per cent but the Hang Seng rising 0.6 per cent. That followed on from a US session that was, when it’s all said and done, still pretty decent. The S&P 500 closed up 0.9 per cent at another record high, hawkish noises from the Fed failing to fully subdue investors’ inflation optimism. US inflation fell to 3.3 per cent in May, below the 3.4 per cent that had been forecast. That prompted traders to price in two rate cuts this year, their enthusiasm being dampened only slightly once Fed projections suggested the median FOMC member expected just one cut.
This morning, France’s Cac 40 is another 1 per cent lower, taking its losses for the week to over 3 per cent. Initial polling of first-round preferences yesterday put Macron’s party on 18 per cent of the parliamentary vote, well below both Le Pen (31 per cent) and a new left alliance (28 per cent). The president’s plan may have been to scare voters away from the right, left, or both, but it’s not working yet.
On home shores, UK voters today await the release of the Labour manifesto, which should be published by the time you read this. Whether it gives us much more detail on what the government-in-waiting will actually do is another question.
A few notable market moves this morning: safety equipment maker Halma sits atop the FTSE All-Share leaderboard this morning, adding record profits and decent guidance to its long record of dividend hikes. Laggard housebuilder Crest Nicholson sits at the other end of the table after warning on profits yet again. More on both those stories in the link below. Outside the FTSE, fintech Wise is another big straggler on the back of weak earnings guidance.
In short, life goes on in the meantime as we await more details on politics and monetary policy. There’s little sign of clarity on the latter: yesterday’s updated Fed ‘dot plot’ emphasises the split opinion. Several FOMC board members are anticipating two cuts this year; several others think ‘one and done’ for 2024, and a handful forecast no cuts as it stands.
No surprise then that Jerome Powell used his press conference to emphasise the relative lack of confidence the central bank has in its outlook. Hence the bias towards caution – many on the board are perhaps still scarred by the uptick in CPI seen in the first quarter. But things are still very much data dependent, and yesterday’s data emphasised that two cuts aren’t off the table yet.
Still, given the pattern of the year so far, expect the chances of a September cut to grow slimmer as the date approaches. US shares will remain dependent on AI newsflow as much as anything else. And make no mistake, the biggest stocks are still rising on that basis. Apple, for instance, is up more than 12 per cent since Tuesday after announcing its own AI plans – its largest two-day gain since 2008. That’s helped the Nasdaq notch up a gain of 2.4 per cent over the past five days. The tech-light Dow, by contrast, is down 0.3 per cent.
The Trader is written by Dan Jones
